The US Federal Reserve expectedly cut interest rates by 25 basis points in its third straight interest rate cut since Covid-19, but shockingly penciled in just two quarter-point cuts in 2025, with the market lookinh to hear more in 30 minutes from Fed Chair Powell to get a sense on how the Fed is apt to refrain from another rate cut in January.
US policymakers voted 11-to-1 to lower the US central bank's key lending rate to between 4.25 percent and 4.50 percent, the Fed announced in a statement. They also penciled in just two quarter-point rate cuts for next year, and sharply hiked their inflation outlook for 2025.
Investors had baked in expectations that the Fed will announce a quarter percentage-point on Wednesday. The latest rate cut builds on the Fed's action in November and September, when it kicked off its easing cycle with a large reduction of half a percentage-point, and penciled in additional cuts for this year.
CBUAE cuts rate
Shortly after the Fed's announcement, the UAE Central Bank too decided to cut the base rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points from 4.65 per cent to 4.40 per cent, effective from Thursday, December 19.
"This decision was taken following the US Federal Reserve’s announcement today to reduce the Interest Rate on Reserve Balances (IORB) by 25 basis points," the Central bank of the UAE said in a statement. "The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities."
(The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.)
